Doing The Right Way

12. 4. 2020

Prevailing wage is common in government contracting. The term is defined as the average or standard level of pay workers, laborers, and mechanics for government projects in the field of construction in excess of $2,000. The Davis-Bacon Act of 1931 is an act that deals with prevailing wage. The Department of Labor is being directed for determining the wage rates that exist in a particular place with similar projects.

Also, if prime contracts exceed $100,000, the labor department require contractors and subcontractors to pay their laborers and mechanics, as well as guards and watchmen, at least one and one-half times of the regular rate of the total amount they are paid for all the working hours that is more than the required 40-hour work week.

Anyone who is hired to work o the project should be paid the amount based on what the other workers receive for similar projects in the area. These include laborers and workers in the construction and building services, such as security guards, janitors, gardeners, cleaners, and workers transporting office equipment, fossil fuels, or refuse to, and from publicly owned facilities.

When the act was established, its main purpose is to avoid contractors and subcontractors who will create deceptively or unrealistically low estimates, which in return will compromise their workers’ wages on the project. No one can avoid dealing with contractors who want to gain more while their workers are being paid less. Currently, 27 states implement their own existing prevailing wage laws, which are also known as “little Davis-Bacon” acts and one of these in Arizona. The state implements the law to any construction project that is state-funded, which in some case they extend to the local and municipal levels.

There are two parts to the prevailing wage that one should understand. First, it includes the basic hourly rate, which is the amount that contractors pay each worker while the other is “fringe benefits” amount. The second amount is paid separately as part of the usual wage or as a fund for the workers’ “bona fide” benefits plan that often includes life and health insurance, 401(k), vacation and holiday pay, or even programs and training for an apprenticeship.

The mandatory fringe benefits are often paid by a lot of contractors because they have an easier way to comply with the labor law. However, this is a more expensive option because contractors can’t get away with payroll taxes. If the amount will be used to fund a “bona fide” benefits plan, the contractor will be totally exempted from any and all payroll taxes, which will help him to save thousands of dollars in a year. The company can also implement the benefits program or improve the existing plan that will considerably reduce extra expense while helping their workers. This will be a win-win situation because companies can ensure that all their workers can greatly enjoy their benefit options.

The thing is that prevailing wage should be used correctly, regardless of directly using it as part of the wage or it can be included in the employee benefit plan. Just make sure that contractors and subcontractors abide by the existing law in order to avoid employment issues as both laborers and contractors can have a major benefit from the projects that are controlled by the government.